Business | Markets
Sensex unlikely to recover soon
Beaten-down Indian shares are on course to post their worst monthly slide ever this week as a spluttering global economy sends investors deeper into a shell, while timid authorities in New Delhi and Mumbai play catch-up with the rest of the world to stem the rot.
- By Geetha Bhaskaran, Special to Gulf News
- Published: 23:33 October 25, 2008
Mumbai: Beaten-down Indian shares are on course to post their worst monthly slide ever this week as a spluttering global economy sends investors deeper into a shell, while timid authorities in New Delhi and Mumbai play catch-up with the rest of the world to stem the rot.
Heavy foreign withdrawals from the slumping stock market drove the rupee to record lows last week, and the trend should continue with a recession knocking on the doors of major economies.
"We're on a one-way street - down, down, down," said equity trader Kevin D'Souza. "Confidence has hit rock bottom. It's impossible to describe the anguish and losses suffered by investors."
The top-30 share Sensex plunged 11 per cent on Friday to 8,701.07 - its lowest close in almost three years, and down nearly a third this month. It would be the biggest monthly fall if the loss is maintained this week.
Foreign funds have dumped shares worth $3.2 billion (Dh11.76 billion) in October, taking the outflow to $12.6 billion in 2008, because of redemption pressures from their investors.
Pressure
The heavy selling has piled pressure on the rupee, which tumbled past 50 to a dollar for the first time on Friday. The unit has lost over 21 per cent this year after rising 12.3 per cent in 2007.
D'Souza said the stock slide would continue until foreigners, who had pumped in a record $17.4 billion in 2007, resumed buying. "For long-term investors, there's a fire sale in equities at the moment," he said. "You need perseverance."
He said a foreign fund manager, who had invested $1,000 in the index in January, could now buy the same quantity for less than $200. This is because the Sensex has lost 60 per cent from its record high in January, while the rupee shed more than a fifth.
Britain and Singapore have seen their economies contracting, while the US is on the verge of slipping into recession. But India's economy, Asia's third-largest after Japan and China, is expected to grow at over seven per cent this year - off nine per cent plus in the previous year.
Analysts said Indian authorities must be more proactive to help economic growth and restore sagging confidence.
"The government and the central bank have been in a catch-up mode," said a money manager at a foreign fund, who did not want to be named because of the sensitive issue. "They need to get a hand on the steering straight away -not lip service, but concrete action on the ground."
Both the prime minister and the finance minister have repeatedly assured investors and depositors, but have refrained from pumping money into banks or buying stocks.
"It's a black day. People are confused, scared and worried," said Arun Kejriwal, strategist at research firm KRIS.
"They don't want to buy shares even if they are getting it almost free, and they can't exit the market at these levels also."
The 10.96 percent plunge on Friday was the index's biggest daily fall since May 17, 2004. All 30 components lost ground, with 20 stocks shedding more than 10 percent.
The benchmark dropped 12.8 per cent on the week, falling for the fifth consecutive week and taking it losses for the year to 57 percent, making it one of the worst performing Asian markets.
"It's useless to take about the market's bottom in this kind of a scenario, but it's confirmed that the recovery will be very, very painful and every rise in the short term will be accompanied by excessive selling pressure," Kejriwal said.
"The confidence in the market has gone completely."
Traders said the slide was unlikely to be halted without foreign buying. Foreign funds have sold a net $12.2 billion of shares in 2008, after buying a record $17.4 billion last year.
Weakened by the foreign selling, the rupee fell past 50 per dollar to a record low on Friday, taking its losses this year to more than 21 per cent.
Dealers said scores of retail investors, who rushed into the stock market last year hoping to join the gold rush after the indices hit a series of record highs, had been hit very badly.
"I had invested about 200,000 rupees ($4,000) in November last year in stocks after I saw some of my colleagues making huge amount of money within a short period of time," said Amit Puri, 35, a technology professional with a private firm in New Delhi.
"Today, the value of my stocks are down by more than half," he said. "I can't even sell those stocks now and get out of the market because at this point in time they are worth a pile of scrap. I will never venture into markets again in my life."
The central bank has cut its key short-term lending rate by one percentage point to eight per cent and released Rs1 trillion (Dh74 billion) of impounded banks funds, but the market was disappointed by its policy review on Friday that said credit growth was well beyond the projection of 20 per cent for 2008-09.
"If the RBI [Reserve Bank of India] is going to work towards reducing credit growth it is not a signal to banks to reduce lending rates," The Indian Express wrote in an editorial Friday, saying the central bank's concern about 29 per cent loan growth was misplaced as this was driven by a 91 per cent jump in credit to the petroleum sector that has been reeling under a huge subsidy burden.
Focus this week will be on the quarterly results of ICICI Bank and State Bank of India which report tomorrow, followed by Mahindra & Mahindra on Wednesday and Tata Motors and Bharti Airtel on Friday.
- The writer is a journalist based in India.
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